Add Category
Australian workers enjoyed a real annual pay increase last year for the first time in almost three years, data from the Australian Bureau of Statistics (ABS) show.
The Wage Price Index (WPI) shows average base pay rose 0.9 per cent in the December quarter, leading to an annual increase of 4.2 per cent over 2023.
Both the quarterly and annual increases exceeded inflation, which came in at 0.6 per cent in the December quarter and 4.1 per cent for the year to December, according to the Consumer Price Index (CPI).
The last time annual wages growth exceeded annual inflation was the March quarter of 2021.
The 4.2 per cent annual wage growth is the best recorded since March 2009, also 4.2 per cent.
Economists surveyed by Reuters typically expected base pay packets to increase by 0.9 per cent in the December quarter and 4.1 per cent over the past year.
The good news for workers is that most economists expect wage growth to remain around this level for the rest of the year.
"The labour market is starting to slacken, which will ultimately weigh on wage growth," noted Sean Langcake from Oxford Economics Australia.
"But there is a good deal of catch-up growth to come through the wage-setting system, and the labour market still remains in a tight position.
"We expect WPI growth will remain around this quarter-on-quarter pace of 0.8-0.9 per cent through 2024."
Public sector pay catch-up boosts wage index
The economy-wide pay increase was boosted by public sector workers, who saw their biggest quarterly pay rise in 15 years after many jurisdictions dropped or loosened wage cap policies.
"Higher growth in the public sector was primarily due to newly implemented enterprise agreements for essential workers in the health care and social assistance and education and training industries following changes to state-based wages policies," noted ABS head of price statistics Michelle Marquardt.
Public sector wages were up 1.3 per cent in the quarter and 4.3 per cent over the past year, seasonally adjusted, edging out private sector pay rises of 0.9 and 4.2 per cent, respectively.
Abhijit Surya from Capital Economics said that was a slight fall in annual private sector wage growth from the previous quarter.
"The share of jobs in the private sector that received a pay hike fell to just 16 per cent in Q4 [fourth quarter], down sharply from 49 per cent in Q3 and from 21 per cent in Q4 2022," he noted.
"And with the sharp increase in award wages behind us, the average pay increment for those who did receive one fell to 4.4 per cent in Q4, down from 5.8 per cent in Q3, although still above the 4.0 per cent figure recorded in the year-earlier period."
Mr Surya said the Reserve Bank will be focused much more on private sector wage moves, as those are both more sensitive to interest rates and also have a greater impact on the Consumer Price Index, which the RBA is trying to get back to annual growth of 2.5 per cent.
"While wage growth won't fall below 4 per cent until the second half of the year, an improvement in productivity growth means that it should nonetheless be consistent with inflation returning to the RBA's 2-3 per cent target," he added.
"The upshot is that we're sticking with our view that the RBA is done hiking rates."
'Encouraging numbers' or 'thin edge of the wedge'?
Treasurer Jim Chalmers said the numbers were "very welcome and very encouraging" with real wage growth returning ahead of Treasury forecasts, while accusing the Liberals of overseeing "a decade of deliberate wage suppression and stagnation" while in government.
"This is the first time since 2018 we've seen three consecutive quarters of real wages growth," he observed.
"Since the election, nominal wages have been growing at an annualised average of 4.0 per cent, compared to 2.2 per cent for our predecessors.
"This is a substantial turnaround in just 18 months."
However, the opposition argues that living standards have fallen further under the Albanese government and, according to new analysis released by the Australian Financial Review, real household incomes are not expected to recover to their pre-pandemic levels until 2027.
Shadow Minster for Employment and Workplace Relations Michaelia Cash argued the government's recent changes to industrial relations laws threatened to undermine long-term wage growth and employment.
"Business groups have warned that the radical changes to our workplace relations system will do absolutely nothing to improve Australia's lagging productivity. Improving productivity is the only way we can have sustainable wage increases," she said.
"The Albanese government is making life more difficult for the job creators of Australia by imposing more regulation, complexity and ultimately costs. These costs will be passed on to consumers or result in the loss of jobs – or both."
Innes Willox, the chief executive of employer advocate the Ai Group, echoed that sentiment.
"Beyond the economy-wide measures of wage rate growth, the very large wage increases emerging in particular areas of the economy present additional concerns over the direction of wages under the government's new workplace relations arrangements," he argued.
"The concerns are two-sided: they introduce new rigidities and new sources of red tape that will make it more difficult to achieve productivity improvements in individual workplaces and they have opened up additional scope for wage increases unrelated to productivity improvements.
"There is a real risk that the high wage increases we are now seeing in parts of the economy are the thin edge of a very damaging wedge."